Competencia y Toma de Riesgo en el Mercado de Créditos de Consumo Bancario Chileno (1997-2009)

The purpose of this paper is to estimate a new index of competition for the banking industry—the Boone indicator—which allows evaluating the level of competition in specific segments of credit, in our case, consumer credit. Additionally, it is intended to determine whether the evolution of this indicator has been associated to a higher degree of risk taking. A novelty of our approach is to consider loan loss provisions as part of the total cost function for bank credit generation. The evolution of the Boone indicator shows a low level of competition between 2003 and 2005. In 2006, competition increased strongly, recovering levels statistically similar to those in the beginning of the period of analysis. This might originate in the development of those banks associated to the retail sector and consumer units of traditional banks, as well as in a process of more aggressive incursion of banks in lower-income customer segments (known as “bancarización”). The relationship between credit risk and competition in this segment of credit is not stable in time. Estimations show that, in the period of the highest increase in competition, the relationship between the Boone indicator and the non-performing loans index is negative and statistically different from zero, which indicates that the rise in competition was indeed associated to higher risk taking.